Applying for Home Loan: Know The Six Important Things Before Applying

Today, getting a home loan is easier than ever before. With both financial and non-financial institutions offering home loans at an attractive interest rate, you can find an offer that best suits your needs. However, before you initiate the home loan process, you must be aware of certain aspects, which are discussed below:

Most first-time home loan applicants tend to look at the housing loan interest rate as the sole factor to shortlist the lenders. While interest is a critical factor as it has a direct impact on the affordability, you must also consider the eligibility requirements, and check if you meet them. The eligibility criteria vary from lender to lender, but generally, most financial institutions sanction the loan based on age, income, credit history, occupation, down payment, etc.

The CIBIL (Credit Information Bureau India Limited) score or the credit score is a critical factor that the lenders consider while determining your eligibility. If you fail to meet the lender's benchmark (which is usually 700 or more) credit score, the chances are high that your loan application will be rejected. Hence, it is paramount that you assess your score first, and if it is low, you must take the necessary steps to increase the score before approaching the lender.One of the definitive ways to improve your credit score is to pay off the existing debts. On the other hand, if you have a high score and good repayment history, you can use this to your advantage to negotiate the loan terms with the lender.

In India, most lenders offer three types of interest rates – fixed rate, floating rate and mixed interest rate. In fixed interest rate loan, as the name suggests, the interest rate remains the same throughout the tenure. The interest rate is fixed at the time of sanction, and mutually agreed upon by both the lender and the borrower.The floating rate interest varies based on the existing market condition and the RBI norms. Several experts suggest home loan borrowers opt for a floating rate loan, as the overall payout tends to lower than the fixed-rate mortgage in the long run. In the mixed interest rate loan, the lenders charge a fixed rate during the initial years of the loan, and later floating rate is applied, and the EMI changes accordingly.

The EMI of the loan depends significantly on three critical factors - the loan amount, interest rate and tenure. The EMI is inversely proportional on the loan tenure you choose; higher the tenure, lower will be the EMI and vice-versa. But, the loan with longer duration, tend to have higher interest. So, while applying for a home loan, assess your finances thoroughly and select the period wisely so that the EMI is affordable.

This is one of the crucial factors to consider, as it would have a direct impact on the overall loan cost. When you apply for a home loan , apart from the interest, the lenders also levy other charges, which would increase your total loan cost. Generally, the lenders charge processing fees, documentation fees, property verification charges, prepayment charges, etc. When negotiating the terms with the lender, ask them about the associated costs, and make an informed choice.

Lastly, before you sign on the documents, it is imperative that you carefully read through every terms and condition mentioned, and understand it correctly. If you don’t understand anything or think that specific terms are unfavourable, discuss with the lender immediately. You must sign the papers only if you are 100% satisfied with the terms and conditions because once you sign the papers, it will be legally binding and you would be obliged to adhere to the terms.It is advisable that you seek an expert real estate lawyer’s opinion about the loan contract and then sign the same to avoid any legal hassles in the future.Considering the above tips can go a long way in simplifying the loan application process and get one step closer to making your dream of being a homeowner come true.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.